Import-Export Business Trends In Australia & UKArticle

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What does the future hold for the UK and Australian import-export businesses?

Australia and the UK share many things: language, history, trading partners and, more recently, a strong interest in Asia. Australia benefits from its proximity to growing Asian markets, while the UK benefits from long-standing trade links with many countries and a premier position as a global financial centre. But their import-export businesses currently face different challenges in their quest for new markets. Australia’s weakening currency benefits its exporters, but its export sector is dominated by commodities which are experiencing sharp price falls: while the UK’s strong currency makes it an attractive import partner, but can mean it struggles to gain export advantage.

UK Rebalancing: EU Declines, China Grows

Currently, the UK’s principal trading partner is the European Union. Between 40-50% of the UK's exports go to the EU, and over 50% of imports come from there. But although exports to the EU have grown in value, the Office of National Statistics says that they have fallen as a share of total UK exports from 54.8% in 1999 to 44.6% in 2014, because of the growing contribution of non-EU countries to world trade. However, faster growth in imports from the EU has resulted in the UK’s trade deficit vis-à-vis the EU widening from £11.2bn in 1999 to £61.6bn in 2014i.

But according to a survey conducted by the British Chambers of Commerce (BCC)ii, UK's export landscape is set to change radically. BCC paints a picture of gradual rebalancing of the UK economy towards a more diversified, balanced global trade position. Consistent with this, the Office of Budget Responsibility(OBR) forecasts gradual reduction in the UK's global trade deficit over the next five yearsiii.

China is key to the UK's medium-term trade rebalancing. It is already the UK’s second-largest import partner after Germany, and the BCC forecasts that by 2021, annual exports to China will more than double, to over £33bn from £14bn in 2014. The visit of the Chinese premier Xi Jinping in October 2015 resulted in a high-level agreement to deepen bilateral trade and investment links and develop a mutual Innovation Cooperation Project: there was specific agreement that China would invest in key UK infrastructure projectsiv. The City of London is a principal hub for offshore yuan trading, and there are moves to link the London and Shanghai stock markets.

Australia: Deepening Ties With Asia

External trade is enormously important to Australia. Export value growth has averaged 8.1% per annum for the last ten years, and in 2014-15, Australia’s trade in goods and services was worth AU$660bnv. For some years now, Australia has enjoyed an export boom driven by investment in commodities extraction: but as global demand for commodities falls, driven by China’s slowdown, the challenge for Australia now is to rebalance its economy away from reliance on commodity exports and miningvi.

Australia already has strong trade relationships with China. In Australia's International Business Survey, delivered in July 2015, China was Australia's second largest trade partner after the United Statesvii. In June 2015, China and Australia signed a Free Trade agreementviii; once implemented, this should make doing business with China easier for Australian businesses. Exporters and importers will benefit from the removal of tariffs and regulatory barriers on both sides, while Australian import-export businesses will find it easier to establish new ventures in Chinaix.

Other Asian countries are becoming increasingly important for Australia. Australian businesses are extending throughout South East Asia: of Australia’s top twenty trade destinations, more than half are in Asia. In 2015, Singapore replaced Japan as Australia’s fifth largest trading partner, just behind the UK and New Zealand. Indonesia, Malaysia, India and Korea are also becoming significant trade destinations for Australian businesses.

Overcoming Barriers To Import-Export Businesses

However, Australia’s International Business Survey (op.cit.) suggests Australian businesses experience significant barriers to doing business in new markets. These are principally language and cultural differences, though local regulations can also be a problem. About 10% of businesses experience difficulties with international payments, cash flow and access to trade finance.

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Language and cultural differences were also cited by the UK’s BCC as barriers to international business. The UK population is famously poor at languages: BCC recommends that learning a foreign language should be compulsory in schools from seven to 16. UK businesses also report access to trade finance as a particular need: businesses may benefit from using corporate FX providers to help cover short-term financing needs in new marketsx.

Both Australian and UK businesses emphasise the importance of face-to-face contact when doing international business. BCC suggests developing a global business-to-business network to support businesses looking to expand internationally.

Short-Term Outlook: Weak And Turbulent

Currently, the UK's trade performance is not looking promising. Although total exports increased in the third quarter of 2015, confidence among exporters is falling and the Confederation of British Industry (CBI) reports reduced export orders among SMEsxi. The BCC forecasts that export growth will fall from 3.6% in 2015 to 2% in 2016, while import growth will weaken from 4.1% in 2015 to only 1.5% in 2016xii. Three factors drive the UK's poor trade outlook:

- general weakness in global trade: the World Trade Organisation forecasts that global trade in 2015 will increase by only 3.3%, less than the historical average of 5.1% though better than the 2.4% average growth of 2011-14xiii.

- worsening terms of trade due to the strength of the UK pound sterling versus most other world currencies

- poor economic performance of the Eurozone, and slowdowns in the US and China.

Australia, too, is impacted by sluggish global trade and slowdowns in the US and China. Export value has dropped in recent months and the trade balance has slipped into the red. This is to a considerable extent driven by falling global prices in Australia’s important commodity exports, notably iron ore and coal. However, the recent weakness of the Australian dollar improves terms of trade, particularly with the US, and there continue to be opportunities for Australian businesses in emerging markets. External trade should therefore continue to grow.

The Takeaway

UK and Australian businesses exporting to (and importing from) new markets, particularly in Asia, may want to look beyond the current financial turbulence to the extensive opportunities that they offer. The slowdown in China seems to presage reorientation towards consumption, which is likely to benefit China’s international trade partners in the longer term.

The Author

Frances Coppola

With 17 years experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.

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